What is a comparative market analysis (CMA) in real estate?

A comparative market analysis, CMA, is an exercise that determines the market value of a home based on similar, recently sold properties. It’s an integral part of the home selling process, as real estate agents use it to determine the listing price of a house. Prospective homebuyers can also use comparative market analysis reports to make competitive offers.

To conduct a comparative market analysis, a real estate agent (or homeowner) identifies several homes that have recently sold in their area. They compare the square footage, number of bedrooms, and features of the properties. The sales prices of those properties are then used to determine the right list price for their own.

Why is a CMA important?

A comparative market analysis is important because it helps determine a home’s asking price so it sells. If houses are priced too high above their fair market value, they risk sitting on the market for a long period and deterring potential buyers. (Read more about how long it takes to sell a house.) If houses are priced too low, they could sell for less than they’re worth. In order to select a price that is both fair and attractive to buyers, it’s vital to conduct this pricing research. 

While CMAs are typically used by sellers, they are also helpful for those looking to buy a home. A comparative market analysis will help a prospective buyer make a competitive offer based on the sales prices of similar properties in the area.

Who performs a CMA?

Most of the time, real estate agents create a comparative market. Agents include a CMA for free (or a small fee) when you decide to work with them to list or buy a house. 

While you can complete a comparative market analysis on your own, real estate professionals have experience creating these reports and may have tools and programs to help them when assess and compare the complex factors so they may be better equipped to do the analysis. Some of the information you'll need may or may not be public though, like sales data, so you can still try to do the CMA on your own.

→ Learn how to find out how much a home sold for

What’s included in a CMA report?

A CMA report gathers information on at least three recent, comparable sales in the area. The following information is gathered for each comparable property or comp:

• Location (including address, neighborhood, and school district)
• Date of sale (ideally within the last year)
• Sales price
• Square footage
• Price per square foot
• Type of property (single family home, townhouse, etc.)
• Lot size
• Age of the property
• Number of bedrooms and bathrooms
• Condition of the home (including the interior and exterior condition, upgrades, and landscaping)
• Amenities (such as a neighborhood pool or nearby park)
• Additional features (garage, fireplace, bonus room, etc.)
• Local market trends (including economic influences)
• Adjusted price

While the goal is to choose similar homes, each property will have slight differences. Making a list of the above features makes it easy to spot the differences between the comparable properties and why they were ultimately sold at different prices.

At the end of the report, each comparable property is assigned an adjusted price. An adjusted price is the estimated price that a comparable home would have sold for if it had the same features as the subject home. The adjusted prices create a price range that you and your real estate agent can use to determine the market value of the subject home. 

How to do a comparative market analysis

Not only does a comparative market analysis help you determine the market value of your home, but it also helps you understand how your property compares to others in the area. 

To conduct a CMA, your real estate agent will take the following measures, which you can also attempt to make your own report:

1. Create a spreadsheet and list information about the subject property

The key to an effective CMA is to compare the subject property to very similar properties. To make the comparison easy, create a spreadsheet. Make a column for the subject property and list key features of the home (such as square footage, number of bedrooms, and location) in each row. 

2. Find at least three comparable properties

Conduct a property search to find sold homes in the area and look for similar homes.  The most ideal comparable houses (also called comps in real estate) will be located near the subject property, be in similar condition, have similar square footage, and have a similar number of bedrooms and bathrooms. They also need to be recent sales, preferably within the last year.

3. List information about the comparable properties in your spreadsheet

Make additional columns in your spreadsheet for each comparable property. List each property’s features in the same row as the subject property’s features. For example, if you listed the square footage of the subject property in row 2, you should also list the square footage of each comparable property in row 2. This will make it easy to spot the differences between each home.

4. Calculate an adjusted price for each comparable property

The goal of calculating an adjusted price is to determine what each property would have sold for if it had the exact same features as the subject property. To calculate the adjusted price of each comparable property:

• Identify how that property differs from the subject property (i.e. additional bedrooms, less square footage, etc.).
• Assign each difference a dollar amount.
• Adjust the sales price up or down to eliminate the differences.

For example, if a comparable property sold for $100,000, but it has one more bedroom than the subject property does, you can assume the subject property will sell for less. If you assign the additional bedroom a $5,000 value, reduce the comparable property’s value to an adjusted price of $95,000. Add additional rows to your spreadsheet for this calculation.

5. Determine a price range

Use the adjusted prices of the similar properties to determine a price range. For example, if the lowest adjusted price is $90,000 and the highest is $115,000, this becomes your price range. If you are a prospective buyer, you will likely make an offer on the home within this range. If you are a seller, you will likely list your home within this range. 

6. Set the price

You or your real estate agent will use the information in the CMA to determine the right listing price or offer price. There are a variety of ways to determine the right price, so your agent will use the technique they feel most comfortable with based on their experience. They may calculate a weighted average of the adjusted prices (with the property needing the least amount of adjustments weighted the highest), or they may use a weighted average price per square foot. They will also make adjustments to the price based on conditions of the current real estate market (like whether demand as it relates to the supply of available homes).

What’s the difference between a CMA and an appraisal? 

While both methods determine the estimated value of a home, each report serves a slightly different purpose. A CMA is conducted to estimate the list price (or offer price) for a property, while an appraisal is done to verify what the home is worth. Appraisals are often completed in order for a mortgage lender to approve a buyer’s financing. Lenders use home appraisers to make sure the home isn't being sold for more than it's current market value.

Another key difference between an appraisal and a CMA in real estate is the person that conducts each report. A comparative market analysis is typically done by a real estate agent or broker (although it can also be done by a prospective buyer or seller) whereas an appraisal is completed by a third-party, licensed appraiser.

Which one is more accurate?

Although both CMAs and home appraisals are thorough, an appraisal is considered more accurate by the real estate industry because it’s conducted by a licensed official. Regardless of how well-researched a comparative market analysis is, an appraisal will still be required by the buyer’s mortgage lender to approve their home loan.